Larger insurance agencies are much more optimistic about their industry’s future than smaller insurers, according to a new survey released mid-October, by a provider of cloud-based insurance software and services. In fact, 70 percent of large agencies said they are “very optimistic” about future growth compared to just 25 percent of small agencies. But there are opportunities to increase earnings potential.
The gap is driven by several factors, including increasing commoditization, an increase of direct-to-carrier purchases of personal insurance, and the fact that smaller agencies have limited their adoption of technology. The study, “How Independent P&C Insurance Agencies Are Thriving in Today’s Competitive Marketplace” was conducted by Vertafore, which provides cloud-based insurance software and services, in partnership with analyst firm Aite Group.
“Our primary goal for conducting this survey was to delve deeper into the current state of
the independent agency market and get a better understanding of what factors are driving
or inhibiting growth,” Todd Eyler, research director at Aite Group, said. “What we found is that the agencies who are thriving are those who recognize the profitability, scalability
and agility that technology can bring to the table. Findings from the survey can be used as
a playbook for agencies working to bridge the growth gap by finding profitable solutions
to counteract disruptive industry changes.”
Despite the gap, overall optimism is good, the study found. Ninety-four percent of agencies of all sizes say they expect moderate to aggressive growth in their businesses over the next three to five years, and that optimism comes from a decade of growth across the major lines of P&C insurance (except for the highly commoditized auto insurance sector). And as the economy continues to improve, sales are growing in commercial package, commercial property, and homeowners insurance products. Specifically, when asked how they feel about the future success of their agency, 70 percent of large agencies and 59 percent of midsize agencies said "very optimistic,” while 46 percent of small agencies said "somewhat optimistic," according to the study.
The growing commoditization of personal auto insurance is a particular stress on smaller agencies (those with less than $1 million in revenue), where personal lines often account for 80 percent or more of their sales, according to the Vertafore and the Aite Group, but diversification is helping to offset the decrease in sales of personal insurance. According to the study, 44 percent of all agencies have diversified into new coverage and product types including, homeowners insurance, commercial lines, and emerging markets such as, cyber liability, identity theft protection, and worksite insurance products. Findings supporting this trend include:
Large agencies typically have a higher percentage of commercial package and property insurance than small agencies.
Homeowners insurance is helping drive growth in agencies of all sizes, and 58 percent of agencies of all sizes have experienced growth in homeowner’s insurance sales over the last 24 months, the study shows.
Cyber liability insurance is emerging as a fast growth offering (among new product lines), with 50 percent of large agencies reporting an increase in sales for this type of coverage over the last 24 months.
Customer service initiatives and adoption of technology are also contributing to growth expectations. The study found that those agencies that invested in customer service efforts have had success, with better customer service (50 percent) and improved cross selling (49 percent). Forty-seven percent of agencies that have deployed advanced, technology-driven customer self-service capabilities on their websites—including chat, video conferencing, and mobile—reported fast growth, according to the study.
Large agencies are benefiting from new partnerships with carriers, which give them access to the carriers’ marketing and technology expertise. Almost two-thirds, or 63 percent, of large agencies have partnered with insurance companies to access their full range of marketing management tools, per the study. A little more than half, or 56 percent, have partnered to leverage predictive analytics capabilities and build more targeted prospect lists.
Smaller agencies are at risk, mainly because they are less likely to specialize their marketing efforts and offer advanced customer self-service capabilities, according to the study. Also, small agencies are less likely to have websites with video and other interactive tools and are significantly more likely to rely on personal lines insurance sales for the majority of their sales.
The online survey was conducted by Aite Group between August and September 2014, and included principals or producers from 194 independent U.S. P&C insurance agencies.
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